FX.co ★ GBP/USD: plan for the European session on January 29. COT reports. Pound stumbled over 1.3742 and got stuck in a horizontal channel

To open long positions on GBP/USD, you need:

I marked the entry points on the 5-minute chart. A more or less adequate signal was formed after the breakout and consolidation below support (1.3652), having the chance to test it from the bottom up (marked the entry area on the chart) resulted in creating a good signal to sell the pound. However, the quote fell by about 20 points and a reversal occurred. After the revision of the technical picture, the bulls managed to settle above resistance at 1.3679 in the afternoon. Testing this level from top to bottom created an excellent entry point into long positions, afterwards the quote reached a high of 1.3726, which brought about 45 points of profit. Selling on the rebound from the 1.3726 level made it possible for us to pick up a corrective 15 points.

The bulls need to defend support at 1.3685 for the first half of the day because a lot depends on it. And although trading is carried out in a horizontal channel, the bulls have a real chance of breaking through annual highs. Forming a false breakout in the 1.3685 area will strengthen the positions of the bulls, which will result in the pair's growth, allowing it to reach resistance at 1.3742, where the upward movement stalled yesterday. Being able to surpass this area and testing it from top to bottom will most likely lead to a new wave of GBP/USD growth in the 1.3794 and 1.3846 areas, where I recommend taking profits. In case the pound falls and buyers are not active in the support area of 1.3685, where the moving averages are playing on the side of buyers, it is best not to rush to buy the pound. The best option would be to wait for GBP/USD to drop to a larger low of 1.3637, which is also the lower border of the horizontal channel, and open long positions from there immediately on a rebound, counting on an upward correction of 20-25 points within the day.

To open short positions on GBP/USD, you need:

The bears will do their best in surpassing 1.3685, since the pair's succeeding decline in the short term depends on it. However, you can open short positions from there only when the price has settled below this range and once it has been tested from the bottom up, which creates a good entry point in order for the quote to return to the 1.3637 low, which is the lower limit of the horizontal channel. A breakout of this area will result in removing a number of buyers' stop-orders and cause the pound to sharply fall to support areas like 1.3584 and 1.3531, where I recommend taking profits. In case the pair grows in the morning, you need to be very careful with short positions. Forming a false breakout in the resistance area of 1.3742 creates a signal to open short positions. I recommend selling GBP/USD immediately on a rebound from a high of 1.3794, counting on a small correction of 25-30 points within the day.

The Commitment of Traders (COT) reports for January 19 recorded a reduction in both long and short positions, which indicates that traders are taking a more cautious approach to this trading instrument. Long non-commercial positions fell from 47,935 to 45,904. At the same time, non-commercial short positions fell from 34,993 to 32,199. We can see that the decline in short positions is much stronger than long ones. As a result, the non-commercial net position increased and reached 13,705 against 12,942 a week earlier. And although traders are trying to take a more wait-and-see position in the area of annual highs, and this is a consequence of the fact that it is very difficult for the bulls to update them, the demand for the pound will still be quite high. The GBP/USD pair will actively move up as quarantine measures are lifted, which have been strengthened due to the new strain of Covid-19. A wait-and-see position of the Bank of England on changes in monetary policy also supports the British pound, and the new labor market support program, which was recently proposed by the UK Treasury Secretary, keeps investors quite optimistic and confident in the medium-term strengthening of the pair.

Indicator signals:

Moving averages

Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market.

Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

A breakout of the upper border of the indicator around 1.3742 will lead to a new wave of growth for the pound. If the pair drops, support will be provided by the lower border of the indicator at 1.3650.

Description of indicators

• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions represent the total long open position of non-commercial traders.
• Short non-commercial positions represent the total short open position of non-commercial traders.
• Total non-commercial net position is the difference between short and long positions of non-commercial traders.